US and Australian Antitrust Investigations into Google and Facebook
Today, some odd-30 years after the creation of the Internet and the World Wide Web by Tim Berners-Lee, it seems to have mutated into an anathema of everything it originally stood for- multitudes of small, niche websites have been replaced by a few lumbering giants, competition has been throttled by the long arm of monopoly power, and privacy seems to have all but vanished. This now-misshaped Internet must be restored somehow, and around the world, various antitrust panels have tried assuming this responsibility with varying degrees of success. This article details the findings of two panels- by the Australian Competition and Consumer Commission, and by the U.S. Subcommittee on Antitrust, Commercial, and Judicial Law- on the business practices of Google and Facebook.
I. Google
a. Australia
The ACCC defined two main markets in which they alleged Google’s market power- the market for general search services in Australia and the market for search advertising services in Australia – the explicit distinction between the two markets is notable- additionally claiming that Google had “substantial bargaining power in its dealings with news media businesses in Australia”.
The Commission states that there exist high barriers to entry in the defined relevant markets, such as the network effects Google faces when collecting user data, the advantages of scope they experience with their wide range of products, and the fact that their dominant position in other markets (like Android) facilitates even more comprehensive data collection. Google has also allegedly undertaken a strategy of strategic acquisition to eliminate external competition and shore up its market dominance. Additionally, the Commission noted that heavy sunk costs, economies of scale, and the strength of Google’s brand act as barriers to entry and expansion for smaller firms.
The Commission also points out the two-way relationship between news media businesses and Google, wherein news businesses’ optimizing their content for Google makes Google more viable for consumers, and Google in return extends the businesses’ reach to consumers. Since many news businesses inevitably rely on Google to disseminate their content, the Commission concludes that Google possesses significant bargaining power in dealings with news media businesses, calling Google an “unavoidable trading partner” for news media businesses.
b. The United States
The Subcommittee report identified two main markets in which Google possessed monopoly power- the market for general online search, and the market for search advertising. They note that Google’s market dominance is protected by the high barriers to entry along with their virtual ubiquitous presence in the technology world, which facilitates data collection and heightens their market intelligence, placing them at an unfair competitive advantage.
The report found that Google had engaged in an aggressive anti-competitive campaign and used their search engine dominance to (1) undermine competitors’ vertical search features, (2) promote their own less effective vertical search features, and (3) misappropriate content from external sources as their own. They were also found to have interspersed paid ads among organic results without making clear distinctions between the two. Despite these less relevant results (which would theoretically encourage consumers to switch to more relevant alternatives), customers and other online market participants are forced to rely on Google due to its anti-competitive practices.
Additionally, the Subcommittee observed the role of Google’s anti-competitive contracts in promoting their monopoly power. Google makes Android manufacturers pre-install a suite of Google apps to gain access to their APIs (Application Programming Interfaces) that are used by most Android apps. Notably, the Competition Commission of India (CCI) also judged that these contracts were anti-competitive. Google, similar to Facebook, was further found to have initiated a ruthless acquisition strategy to subdue external competition. Google uses its scale to exploit information asymmetries and abuses its “near-perfect” market intelligence to establish further establish market power.
Furthermore, Google has used these practices and their market power to establish dominance in other digital markets like browsers, online navigation, and e-mail, which facilitate its data collection even further, reinforcing its monopoly power in each market. This feedback loop has been described by the Subcommittee as an “ecosystem of interlocking monopolies.”
II. Facebook
a. Australia
The Commission once again defines two relevant markets for Facebook’s market power- the market for social media services in Australia and the market for display advertising services in Australia, again claiming that Facebook possessed “substantial bargaining power in its dealings with news media businesses in Australia.”
Network effects were once again used to justify why Facebook had a clear advantage over other, smaller platforms- the value of a social media platform as a service directly increases when more users join it- these network effects mean that Facebook’s already established user base allows it a major competitive advantage that translates to a positive feedback loop. Facebook is also, similar to other large digital companies, subject to economies of scale, and benefits from advantages of scope due to its wide range of products like WhatsApp, Instagram, etc. Finally, a strategic acquisition program has seemingly been implemented by Facebook to weaken external competition. The Commission concluded that Facebook was protected from dynamic competition in the social media services market due to the abovementioned factors.
Despite the significant breadth of the display advertising market, Facebook (combined with Instagram) is estimated to have a market share of about 51 percent, which grants it significant market power.
Finally, the Commission justifies its allegation of Facebook’s “substantial bargaining power” over news media businesses by pointing out the unequal balance of power between the two- Facebook makes up a large part of any news outlet’s revenue, whereas no single news provider makes up a large part of Facebook’s overall news media landscape. This is an indication of the fact that Facebook is more important to news media businesses than news media businesses are to Facebook, cementing an unequal trade relationship.
b. The United States
The Subcommittee analyzed the market for social media networking and determined that Facebook possessed monopoly power in the market. Using Facebook’s internal documents and communications, the report observed that Facebook implemented a ruthless strategic acquisition strategy to weaken external competition. They also used internal presentations to highlight the true abundance of network effects in the market of social media networking, with one presentation describing the company’s network effects as a “flywheel” (a circular construction with extreme rotational force). Furthermore, the Subcommittee found that Facebook employed a “series of anticompetitive business practices” to retain its monopoly power, including using superior market intelligence to identify potential competitors and then “acquire, copy, or kill these firms”. Finally, the report noted that “[in] the absence of competition, Facebook’s quality has deteriorated over time, resulting in worse privacy protections for its users and a dramatic rise in misinformation on its platform.”